Name:_______________________________________

McKinney Company

McKinney Company has the following information available for October when 3,500 units were
produced (round answers to the nearest dollar).

Standards:
Material 3.5 pounds per unit @ $4.50 per pound
Labor 5.0 hours per unit @ $10.25 per hour

Actual:
Material purchased 12,300 pounds @ $4.25
Material used 11,750 pounds
17,300 direct labor hours @ $10.20 per hour

1. Refer to McKinney Company. What is the labor rate variance?

a. $875 F b. $865 F c. $865 U d. $875 U

2. Refer to McKinney Company. What is the labor efficiency variance?

a. $2,050 F b. $2,050 U c. $2,040 U d. $2,040 F
3. Refer to McKinney Company. What is the material price variance (based on quantity purchased)?
a. $3,075 U b. $2,938 U c. $2,938 F d. $3,075 F
4. Refer to McKinney Company. What is the material quantity variance?
a. $2,250 F b. $2,250 U c. $225 F d. $2,475 U

5. Refer to McKinney Company. Assume that the company computes the material price variance on the
basis of material issued to production. What is the total material variance?
a. $2,850 U b. $5,188 U c. $5,188 F d. $2,850 F

6 Consider the equation X = Sales - [(CM/Sales)  (Sales)]. What is X?

a. net income c. contribution margin
b. fixed costs d. variable costs

Below is an income statement for Tori Spelling Company:

Sales $300,000 
Variable costs (150,000)
Contribution margin $150,000 
Fixed costs (100,000)
Profit before taxes $ 50,000 

7 Refer to Tori Spelling Company. What was the company's margin of safety?
a. $50,000 c. $150,000
b. $100,000 d. $25,000
8. Refer to Tori Spelling Company. If the unit sales price for Tori Spelling’s sole product was $10, how
many units would it have needed to sell to produce a profit of $40,000?
a. 27,500 c. 28,000
b. 29,000 d. can't be determined from the information
 given

The following information relates to financial projections of Jarvis Company:

Projected sales 60,000 units

Projected variable costs $2.00 per unit
Projected fixed costs $50,000 per year
Projected unit sales price $7.00

9. Refer to Jarvis Company. How many units would Jarvis Company need to sell to earn a profit before
taxes of $10,000?
a. 25,714 c. 8,571
b. 10,000 d. 12,000
10. Greene Company has the following expected pattern of collections on credit sales: 70 percent collected in
the month of sale, 15 percent in the month after the month of sale, and 14 percent in the second month
after the month of sale. The remaining 1 percent is never collected.

At the end of May, Greene Company has the following accounts receivable balances:

From April sales $21,000

From May sales 48,000

Greene expected sales for June are $150,000. How much cash will Greene Company expect to collect in
June?
a. $127,400 c. $148,600
b. $129,000 d. $152,520

TRUE/FALSE

1. A company’s break-even point is the level where total revenues equal total costs.

2. Break-even point may be expressed in terms of units or dollars.

3. Total variable costs vary directly with levels of production.

4. The first stage in the budgeting process is the preparation of a sales budget.

5. The first stage in the budgeting process is the preparation of a cash collections budget.

6. The amount of raw materials that must be purchased can be computed by the following formula:
Beginning inventory + Materials required - Ending inventory.

7. The formula for price/rate variance is (AP - SP) x AQ

8. The formula for price/rate variance is (AP - SP) x SQ

9. Variable expenses increase when sales increase. They also decrease when sales decrease.

10. Fixed expenses do not increase when sales increase.